Electrical Wholesale Market Optimistic For 2010

In 2007, the combined sales of the Electrical Wholesalers identified reached around £4.55 billion, reflecting growth of just over 13% since 2004. The UK electrical wholesalers have experienced reasonably positive performance in recent years, the market performing particularly well in 2006 with sales rising by more than 8%.

The slowdown in the UK economy and the ongoing impact on the housing market and business confidence is now indicated to be impacting the electrical wholesale mrket, as commercial and domestic construction projects in particular are postponed. Whilst there remains some optimism in the market derived from public sector construction spending, our forecasts are for market revenues to decline in 2008 to around £4.3 billion, reflecting a decline of 5%.

Given the recent downgrading of economic forecasts by the Bank of England, our forecasts for the electrical wholesale market reflect the likelihood of a further contraction in sales in 2009 to levels of around £4 billion. By 2010, however, given an improving housing market and subsequent return of business confidence levels resulting in higher construction and RMI activity, sales through electrical wholesalers are forecast to return to growth, with the sector achieving total revenue of just under £4.5 billion by 2012.

Forecasts are for a relatively modest return to growth for the electrical wholesale market in current price terms by 2010 at around 2%, as the macro-economic cycle returns to positive growth. In addition, larger scale construction projects such as the Olympic Games site is likely to increasingly influence the electrical products market in late 2009 / early 2010 with peak construction activity for the Games taking place in 2010/2011. Public sector expenditure in housing, education and health should also sustain the market in the short to medium term, underpinning demand in the market.

Another key issue which has provided growth for the electrical wholesale market in terms of sales revenue is indicated to be the rising cost of many of the key raw materials used in products sold through this sector, such as steel, copper, plastics etc., as well as the rising price of fuel contributing to higher transportation costs. These issues are likely to have, in part, contributed to the rapid growth in the market in 2006 in terms of sales, though are also indicated to have had a negative impact on profitability levels, both for electrical product manufacturers and the electrical wholesalers themselves.

However, inflationary pressures from fuel, energy and materials in particular, coupled with the rise in low cost imports in many of the key product sectors are likely to dampen revenue growth in the medium to longer term, sustaining pricing pressure and with subsequent negative impact on profitability.

Whilst sales during 2007 experienced substantially lower levels of growth than 2006, key players in the industry have increased their focus on margins, employing strategies which focus on projects and orders which offer greater levels of profitability. As such, overall industry profitability in 2007 remained at a relatively high level of just over £180 million, reflecting an increase of almost 8%.

The performance of the electrical wholesale market in 2007 is in marked contrast to that of 2006, where turnover grew at the expense of profitability which declined by around 7% in one year. This strategy of focusing on turnover rather than profit is likely to return in the next 1-2 years, as declining volume demand negates the possibility of ‘cherry-picking’ more profitable contracts to some extent. As such, profitability in the industry is likely to contract relatively sharply in the short term, falling to around £137 million by 2009.

Given the predicted upturn in the wider economy in 2010, volume demand from domestic housing and commercial construction is likely to provide some impetus for the electrical wholesale market in mid-late 2010. As such, forecasts are for a return to profit growth in 2010, reaching around £144 million and by 2012 industry profitability is forecast to rise further to around £165 million.

In 2008, total assets of the Electrical Wholesale market identified are expected to exceed £2.3 billion, reflecting a growth of around 1% over the 2007 figure, despite a decline in sales revenue. Whilst this may initially depict a reasonably healthy scenario, indications are that the majority of this growth has emanated from a rapid rise in borrowing, coupled with some growth in fixed assets during H1 2008.

Following sustained growth in recent years, 2009 is expected to experience a decline in assets for the first time in a number of years. Whilst growth in borrowing will dampen the impact of declining sales to some extent, a contraction of industry assets of around 2% is likely reflecting declining commercial property prices coupled with the downturn in revenue and profitability.

More optimistic performance is forecast for 2010 for the electrical wholesale market, however, with a return to growth of around 1.5% and by 2011 forecasts are for assets to achieve growth at, or around, inflationary levels. Given a continued improvement in the UK economy, by 2012 prospects are for asset levels to reach around £2.5 billion, reflecting growth of 8% since 2008.

Mark Waddy
MTW Research

Electrical Wholesale Market Rank & Profile Report - UK 2008 from MTW Research
http://www.marketresearchreports.co.uk

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